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Free Credit Report: How The Ads Soak Consumers

First Posted: 04/05/09 06:12 AM ET Updated: 05/25/11 02:05 PM ET

Freecreditreport

Commercials for FreeCreditReport.com have reached a saturation point in the consciousness of the television-watching public. The affable, scruffy young man with the guitar -- alternately a victim of identity theft or plain old bad credit -- has sung his way into our hearts and minds. His siren song warns us to monitor our credit worthiness, because if we don't, we'll wind up like him, with a bad job waiting tables wearing a puffy shirt in a pirate-themed restaurant.

The videos are ubiquitous on TV and wildly popular on YouTube, where they've received hundreds of thousands of hits and have spawned numerous imitation fan videos.

That ubiquity didn't happen by accident. Experian, the company that owns FreeCreditReport.com, spent $70.7 million in 2007 and $19 million in just the third quarter of 2008, an increase of 28% over the same period in 2007, according to SmartMoney.

Consumer advocates say it's a fundamentally dishonest business, because a person who registers with the Web site only gets a free credit report after enrolling in a $14.95-a-month credit-monitoring program. As the economy shrinks and lending withers, critics say FreeCreditReport.com is unfairly capitalizing on people's concerns over their credit worthiness.

"It is unfair and deceptive to link the FreeCreditReport.com to the notion that you're going to improve your FICO score or your ability to fight identity theft," says Ed Mierzwinski, program director for the U.S. Public Interest Research Group in Washington, D.C. "And it isn't free."

Experian paid $950,000 to settle Federal Trade Commission charges of deceptive advertising in 2005, and $300,000 for the same reason in 2007. By federal law enacted in 2003, consumers are entitled to a free credit report every year, available at AnnualCreditReport.com.

"A million dollar fine every five years is chump change," says Mierzwinski. "That's gonna keep them off the Golf Channel."

After the FTC's wrist-slapping, a disclaimer appeared on FreeCreditReport.com alerting consumers that if "you don't cancel your membership within the 7-day trial period, you will be billed $14.95 for each month that you continue your membership." Mierzwinksi attributes the FTC's leniency to an overly business-friendly Bush administration.

Deborah Platt Majoras, appointed by President Bush to head the FTC in 2004, was previously a partner in the law firm Jones Day, which had represented Experian against accusations of false advertising and unfair business practices. Majoras told USA Today in 2007 that she recused herself from the FTC's 2005 investigation of Experian but not the subsequent case two years later. Majoras has since returned to the private sector.

Mierzwinski and other consumer advocates wonder whether revenue from FreeCreditReport.com is fueling an Experian scheme to dramatically boost its share of the credit-monitoring market.

Earlier this year, Experian announced that it would no longer allow the Fair Isaac corporation to sell the Experian version of its FICO score to consumers as of Feb. 14. Fair Isaac measures people's creditworthiness and sells its findings on myFICO.com as three different numerical FICO scores, with each score calculated using data from each of the Big Three credit bureaus--Experian, TransUnion, and Equifax. Fair Isaac also sells FICO scores to lenders, who use them to determine a potential borrower's likelihood to repay a loan. Experian still allows Fair Isaac to sell consumers' FICO score to lenders.

In 2006 the Big Three banded together to create their own system to score consumers on creditworthiness, called Vantage. (Fair Isaac immediately sued, saying the credit bureaus were violating antitrust laws and engaging in unfair competitive practices. The lawsuit is ongoing.)

"Experian's made the calculation that they're willing to forgo the revenue they make selling the Experian version of the score at myFico.com," says Privacy Times editor Evan Hendricks, "in order to build up the revenue and market share of FreeCreditReport.com and the Vantage fake-o score they sell there."

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